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Escher Group - 185p per share recommended offer, a “substantial premium”… Really?!

By Steve Moore | Saturday 10 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Escher Group (ESCH) has announced a 185p per share recommended offer, with Chairman Nick Winks emphasising “this cash offer with its substantial premium is a good outcome for our shareholders - given the uncertainty inherent in our customers' spending patterns and traditional one-off licence based business model, as well as the need to invest further in the business”.. Wait a minute though Nick, the shares were over 300p in 2014 and over 200p as recently as October! And...

... March 2017-announced results saw the company emphasising “given the quality of our pipeline, current technology set and contracted revenue, we remain confident about the prospects for 2017 and beyond” and a June contract win that “the contract with this postal operator shows that we are building real traction with our mobile point-of-service solution… there is a continuing trend towards mPOS solutions from global Postal Operators”.

By mid-September though it had become “to meet our full-year expectations, we will need to sign additional licence sales in H2 from our pipeline of opportunities” and on 14th November “the group will not close the additional licence sales that it had expected”. The latter saw the shares slump from 175p to 140p, before recovering to around 160p - and now there’s an attempt to emphasise the offer represents “a premium of 32.14 per cent”! I also note the company listed on AIM at 170p… and that in 2011!

However, I previously reviewed last month – concluding that I remain of the view that the rating here needs to reflect a lack of visibility and, even then, I’d want evidence of the cash generation ability of the now structured business before considering other than avoid. The offer does provide a bit above the 155p of then - but to try to emphasise a “substantial premium” is ridiculous attempted spin!

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